An open letter to Nokia from a former employee: kill Ovi, spin off the hardware unit, become a bank

On numerous occasions people have commented that the way I write about Nokia makes me sound bitter about being fired. If I have given off that impression, then I must apologize because that is not what I’ve intended. The frustration I feel with regards to Nokia is like that of a parent who knows that their child is capable of so much, yet repeatedly watches them make mistakes and squander their potential. Nokia, like any large corporation, has the ability to impact a vast number of people simply due to their scale. With that amount of power, comes an even greater sense of responsibility. No one else in the mobile space is trying to sell devices to a market of people who make less in a year than what you or I do in a single day. No one else in the mobile space invests in a distribution chain that enables people living in villages located in remote mountain regions to purchase their first mobile phone. No one in the mobile space is developing mobile applications and services that help farmers in third world countries yield a better harvest so that they can increase their standard of living.

Nokia has a rich history that spans over 140 years. From a paper factory built by Fredrik Idestam in 1865 in the city of Tampere, to a producer of rubber boots beginning in 1898, to a manufacture of cables starting in 1912, to a telecommunications pioneer in the 1970s and 1980s with Europe’s first fully digital telephone exchange and finally, what we recognize Nokia as today, a mobile phone power house thanks to a decision in 1992 by former CEO Jorma Ollila to focus solely on mobile telecommunications. It is time to start writing the next chapter in Nokia’s history, and I believe that it should be radically different than the course the Finnish company has currently set for itself.

Ovi is Nokia’s second attempt to get into the mobile services space; Club Nokia was the first. During Nokia’s Q2 2009 earnings call, Chief Financial Officer Rick Simonson alluded to how the company will modify the way they report their numbers starting in Q3 2009. By bundling Ovi services into Nokia devices, creating what Nokia refers to as a “solution,” profit made per device shipped will hopefully increase. It is a clone of Microsoft’s strategy to take over the browser market with Internet Explorer, by that I mean it doesn’t matter if a competitor’s product is better, most people will simply use what is already on the device they purchase. This is a very dangerous strategy since the world we live in today does not operate like the world once did when Microsoft attempted, and succeeded, at beating Netscape. Back then, there were only two browsers. Today Microsoft competes with Opera, Chrome, Firefox and Safari in the browser space. The same analogy can be extended for discussion around Ovi, which today competes with iTunes, Facebook, GMail, Flickr, Yahoo, Dropbox, YouTube, and the list goes on. Why do you think Google is pushing for developers to build web applications? They want a world where you can purchase any device you want, running any operating system, and the first action that you as a user complete is to launch the browser and type in the names of your favorite sites and services. In a hyper connected age, it isn’t going to take long for those people living in the mountains to find out that Ovi Mail is terrible and that GMail is better. It isn’t going to take long for people in first world countries to figure out that Google Maps has a better points of interest database and search engine when compared to Nokia Maps. It isn’t going to take long for people to figure out that Facebook is a better way of managing your contacts than Contacts on Ovi. All the more reason to stop investing in Ovi all together, call it a failure, and pour more resources into making a better mobile user experience.

Nokia’s core strength is size. When deciding what devices will make up their 2011 portfolio, Nokia can go to any manufacture and make an order for a component, such as a screen, that can be in the range of over 100 million units. As it stands today, Nokia makes 4 out of every 10 mobile phones sold. Nokia should sell this manufacturing unit and make it an independent company that produces mobile phones for everyone. This new company will operate similar to how Foxconn functions today. They’ll have the expertise, they’ll have the factories and they’ll even increase the pace of innovation since larger orders can be placed from component suppliers, therefore accelerating price erosion which gives more people the ability to purchase high end devices. Nokia’s core strength is also the company’s core problem. When you’re burdened with ordering such a large number of units of a certain component, you wait until sufficient inventory is in the channel to get a better price and insure dependable availability. Why do you think Nokia is late at producing an 8 megapixel camera phone? Why do you think Nokia is late at producing a device with a capacitive touch screen? Why do you think Nokia is late at producing a device with the latest processor from ARM? Those features are enabled by components that today are not shipping in large quantities, and Nokia does not want to touch them since they need to maintain a high operating margin to appease stockholders. If Nokia spun off the hardware unit, that separate company could purchase every single available Cortex A8 processor, 8 megapixel camera sensor, and WVGA capacitive screen available in the channel and then negotiate prices with every handset maker.

The ability to manufacture is one thing, getting your devices into shops is another. No one comes close to competing with Nokia at achieving such a massive retail presence. Nokia mobile phones are sold in shops all around the world, from cosmopolitan megacities, to villages with less than 1000 people. Combine those retail partnerships with a large investment in banking infrastructure, and Nokia could potentially become the largest bank in the world. When FeliCa, the company that provides the NFC chip inside Japanese mobile phones which enables wireless payments, was launched, NTT DoCoMo coughed up €40 million to help pay for the point of sale units in shops all across the country. They solved the chicken or the egg problem by giving everyone one piece of the puzzle, and then waiting for consumers to pick up the other piece. Nokia should take several hundred million euros and invest in creating a wireless payment infrastructure across western and northern Europe and then spread through the rest of the world gradually. Apple can keep their 30% profit on applications, and whatever they make off music. Nokia could pocket .01% every time someone purchases a beer at a pub, or a meal at a restaurant, or a ticket to see a movie. Since the infrastructure will be installed by Nokia, they can take a cut of every transaction, regardless if the device used for that transaction was produced by Nokia, Apple, HTC, etc.

Nokia can chose to compete in the space they’ve helped develop and mature since the early 90s, where competition grows more and more fierce each day, or they change the rules to their advantage. With Nokia being the 5th most popular brand today, thanks to their wide portfolio of mobile phones that fit every budget, they already have a head start at gaining people’s trust at becoming a viable financial institution. I admit that some of the ideas I’ve outlined above are not my own. My final role at Nokia was in a strategic foresighting team that was responsible for telling the company where the world is going to be in five years. We held multiple workshops, and the one thing that always came up was banking. Now I don’t know what the people at the top of Nokia’s corporate ladder have in mind for what the company will look like in 2015, but there are certainly a great many number of people below, people much smarter than me who I look up to, who see Nokia becoming a bank as an inevitability. There is even one guy fairly high up who I’ve had the pleasure of meeting with several times trying to get this idea through. I wish him the best of luck.

I’m not bitter that I got fired from Nokia. I’m bitter because I got to see, as an insider, with my own eyes, what bright talented people are capable of, yet were denied the ability to achieve, due to higher management. There are so many talented people at Nokia, and they’re hungry to make a difference.

Let them.

[Data above about the Japanese market provided by Tracy Sullivan – Senior Public Relations Specialist – Forrester Research, Inc. from the report titled Mobile Contactless Payments In Europe: The Reality Beyond The NFC Hype]

  • Ashu

    I wish OPK reads this and begs for your forgiveness for letting you go. This IS a money spinner thought. Brilliant article.

  • Hannes

    The key is to invest in the right skills to get this done. One can’t help wondering if the Obopay investment increased the money skills of the company

  • marcin

    Welcome to the club.

    I’ve been a little bit shocked seeing that they let You go. Whatever.

    As I say You cannot be half-pregnant and that’s exactly what’s NOK is doing about Internet services. You either do it full spead ahead or not.

    The question is – for now – what does NOK really want to be in 5 years ?
    I don’t know, really, and I think the shareholders will start asking this RSN, since a majority is not aware about the internals.

    Focusing on the short-term, instead of building and investing in long-term strategies (yes, I know it’s hard to convince shareholders), they gradually switch everything off.

    So whats there to stay today ?

    Maps and Music and Email, and low-to-mid-quality java conversions on N-Gage ? Can it survive ?

    I forgot the OVI store. Way better than Download! – yes. But is it going to be enough ?

    Do we still see consistent OVI picture ? Forget it. I know that it is so called recession that has caused a lot of such moves – the question is if they’re optimal ?

  • TY

    I fully agree with his thought. However, the execution is not straight forward for technology company like Nokia. Banking and financial services take processes and regulations above anything. This often frustrate the technologists.

  • Dean Bubley

    I agree with a lot of your sentiments about the futility of competing vs. Facebook, YouTube etc on their home territories.

    However, I’m not such a believer in mobile payments or banking as being the farm on which Nokia should place all its bets. I think things like NFC are horribly overhyped for a variety of reasons. This is for both for developed markets where cash+cards already “work” and don’t benefit from substitution, or in many markets where the reliance on prepay (with small top-ups) means that a secondary payment account is needed.

    I think there needs to be “something else” where Nokia could create a service role spanning the industry & all user segments. Maybe something around augmented reality, maybe inventing “the next Facebook” and rolling it out on all handsets *and PCs*.

    Time will tell.

    Dean

    • Stefan Constantinescu

      NFC can drive augmented reality. How many people do you think are really going to hold their mobile phone in front of an object for an extended period of time just to get information about it? Augmented reality can/will be driven by touch enabled, real world objects. Tap this for more information, tap that, etc. Nokia could drive both augmented reality and mobile based payments.

      But you’re right Dean, time will tell. Thanks for reading my article, I highly value your opinions.

  • Sander van der Wal

    Nokia will have to enter a completely new (to them) business, with a lot of established players, heavily regulated, high risc, lots of investment needed, with a return similar to what they have now. That’s not easy. It isn’t like entering the phone business as a TV maker, at the time the phone business was marginal, nothing compared to the well-established credit card and debit card businesses that exists today.

    Nokia could also fix its smartphone business and start making much more money much easier, much closer to its core competence, they did invent the smartphone business with the Communicator after all.

  • mobiledan

    Great write-up! Thank you for explaing the reasons why Nokia hasn’t gone with newer technology, I never thought about their demand being so great, and that being the delay!

    The other parts with the Nokia bank made me think of a pilot a year or so ago in which Nokia, AT&T and NYC MTA did something with Pay-Pass for paying for your subway and bus rides, I had just missed that pilot… But it was very interesting!

    Always love your take on things, and your style of writing!
    Keep it up!
    Dan

  • Dave.mac

    It’s an interesting thought, but could it ever be more than that?

    Why have Nokia’s content/entertainment/services plans often fallen down? Personally I believe it’s because they are a company full of tech people. Understanding how code or hardware works is far from understanding how the media industry works.

    Banking is a completely different industry, and the regulatory environment is massively complex, varying country to country. You should take a look at that minefield, it may change your opinion!

    I would doubt that Nokia in its current form could implement what you’re proposing. Spinning off the handset manufacturing, letting that division keep most of the techies, perhaps this is a solution. But then what could the “new” Nokia achieve beyond that which Obopay could have achieved on its own? And how about Ovi – why not ditch the handset division and focus on Ovi services? At least they have made a start there and some (note: “some”) good people, with banking they have ex-Obopay people and that’s it as far as existing expertise goes. And with Visa already getting into the mobile/contactless payments sphere, could an inexperienced “Nokia Bank” compete with such a well established and powerful competitor?

    My question is simply: if Nokia can’t succeed in one alternative market (Ovi) then why should it succeed in another, more complex market?

    However, I don’t want to be completely negative – there’s one figure you give that I take issue with and it makes your case more compelling. 0.01% of all payments – you should see what Visa and Mastercard charge merchants, I think the average is more around the 4% mark. So the returns are possibly 400 times what you’ve considered!

  • Stefan Constantinescu

    Basically Nokia should become the next Visa. Accepted everywhere. They’d offer a service that banks, or operators, could then resell to their customers.

    I should have been more clear, you’re right.

  • Stefan Constantinescu

    Nokia has a div/yield of 13.3%, Visa of 16.3% and Mastercard of 50%, why wouldn’t investors want the company to become a payments processor?

    Besides, Visa and Mastercard only do credit card processing, nothing else. Nokia will still have NSN and their own designers creating mobile products.

    And to quote Wikipedia:

    “Historically, a higher dividend yield has been considered to be desirable among investors. A high dividend yield can be considered to be evidence that a stock is under priced or that the company has fallen on hard times and future dividends will not be as high as previous ones. Similarly a low dividend yield can be considered evidence that the stock is overpriced or that future dividends might be higher.

    Dividend yield fell out of favor somewhat during the 1990s because of an increasing emphasis on price appreciation over dividends as the main form of return on investments.”

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